You might have already heard about NRO and NRE deposits offered in Indian currency, which can be opened with most of the banks across India. GIFT City FDs are relatively new deposit options for NRIs to open accounts
What is GIFT City?
GIFT City (Gujarat International Finance Tec-City) has been at the forefront of financial news in the past few years for a host of reasons such as fintech innovation, novel regulatory framework, and even its sustainable design.
Further, GIFT City IFSC is envisioned as a global financial and IT services hub, comparable to financial centres like Singapore and Dubai. It is designed to be investor-friendly, and offers a simplified process for setting up businesses, with quick approvals and minimal bureaucratic hurdles.
GIFT City has significantly expanded the deposit options for non-resident Indians. IFSC Banking Units (IBUs) offer a financial ecosystem where NRIs can make foreign currency deposits in a simplified, compliant and tax-efficient manner. With this, NRIs have multiple deposit options in India to address their investment needs and balance their financial goals.
Let's look at a comparative understanding of each deposit on a feature-to-feature basis to help you make a rational investment choice.
GIFT City Deposits
GIFT City deposits in foreign currency (offshore deposits) are offered by GIFT City IBUs to individuals (non-resident Indians and foreign nationals), corporations, and minors.
Key Features and Benefits of GIFT City Deposits
Duration: Deposit tenure typically ranges from seven days to ten years, depending on the offering bank.
Currency: GIFT City deposits are part of India's International Financial Services Centre (IFSC) initiatives and are available in major foreign currencies like USD (US Dollars), GBP (British Pound), EUR (Euro), CAD (Canadian Dollar), SGD (Singapore Dollar), AED (UAE Dhiram), etc. varying from IBU to IBU.
Repatriation: The deposit is fully repatriable, including both principal and interest.
Taxation: Interest income is tax-free in India for non-residents. However, it is important to check the tax laws applicable in the country of residence and DTAA benefits, if any.
Premature withdrawal: GIFT City deposits typically offer (if they are callable) a partial closure facility. However, penalties may apply as per the premature withdrawal clause of the offering bank. This may differ based on the currency and product type too.
Interest rate: Rates vary by currency and bank, often slightly higher than international deposit rates. Rates are competitive due to the significant benefits given to IFSC units, such as 100% tax exemption in the first 10 years, no GST (goods and services tax), etc., specific to the fintech hub.
Funding: Deposits can be funded by foreign currency drafts/cheques, SWIFT transfers, and existing NRE/FCNR accounts in India.
Regulatory framework: GIFT City IBUs offering deposits are regulated by the International Financial Services Centres Authority (IFSCA) with simplified compliance.
NRO Deposits
NRO deposits are the term deposits offered to NRIs by the banks in India to manage income from Indian sources such as rent received from property in India, dividends, etc.
Key Features and Benefits of NRO Deposits
Duration: Deposit tenure typically ranges from seven days to ten years, depending on the bank’s offerings.
Currency: Deposits are held in Indian rupees, and interest is also paid in Indian rupees.
Repatriation: Repatriation is subject to the limits set by FEMA (up to USD 1 million per financial year), post payment of any taxes due in India on funds received in the NRO account
Taxation: Interest income from NRO deposits is subject to income tax in India. Banks deduct TDS (Tax Deducted at Source) at 30% plus applicable surcharge and CESS.
Premature withdrawal: Banks do offer partial closure of NRO deposits before maturity. Some banks allow partial withdrawal at 1% below the contracted rate and some charge penalties. This may vary from bank to bank depending on their premature withdrawal clause.
Interest rate: NRO deposits offer a competitive rate of interest. Currently, interest rates in public sector banks range from 3.50% to 7.30%. Private sector banks offer interest rates ranging from 3.00% to 8.00% for varying tenure.
Funding: Deposits can be funded by NRO/NRE/FCNR accounts, other Indian funds, direct foreign remittance, and foreign currency notes/traveller's cheques.
Regulatory framework: NRO deposits are offered by banks across India regulated by the Reserve Bank of India (RBI).
NRE Deposits
NRE deposits are term deposits offered by banks in India to cater to the needs of NRIs looking to save their foreign earnings in Indian rupees.
Key Features and Benefits of NRE Deposits
Duration: NRE deposits are generally offered for a duration of one year to ten years depending on the bank you choose.
Currency: NRE deposits are offered in Indian rupees. NRIs can convert their foreign earnings and grow them in Indian currency with NRE deposits.
Repatriation: Fully repatriable, including principal and the interest.
Taxation: Interest income from NRE deposits is exempt from income tax in India. It is advisable to check for potential taxability in foreign country of residence.
Premature withdrawal:
Flexibility of partial withdrawal comes with a reduced interest rate or penalty depending on the terms of the offering bank. No interest is paid on withdrawal before 1 year.
Interest rate: NRE deposits offer an attractive rate of interest. Currently, interest rates in public sector banks range from 5.25% to 7.30%. Private sector banks offer interest rates ranging from 6.20% to 8.00% for varying tenure.
Funding: NRE deposits can be funded by existing NRE/FCNR accounts, direct remittance, and foreign currency notes/traveller’s cheques.
Regulatory framework: NRE deposits held in banks in India are regulated by the Reserve Bank of India (RBI).
Conclusion
To sum up, GIFT City deposits are ideal for NRIs looking to invest in foreign currency within a simplified global compliance and tax-efficient framework with no restrictions on repatriation and currency risk. NRO deposits are meant for NRIs with income sources in India (like rent or dividends) who wish to manage and repatriate these funds within certain limits. On the other hand, NRE deposits are great for NRIs who want to invest their foreign earnings in India with tax-free interest and full repatriation benefits. Making the suitable choice drops down to your investment need.
